NA Softwood Lumber Prices Compared to Historical Highs: December 2018

Trading of US and Canadian softwood lumber last week continued to slide as we head toward seasonal holiday sawmill closures and curtailments. The price of benchmark Western Spruce-Pine-Fir KD 2x4 #2&Btr construction framing dimension lumber commodity stayed level with the previous week, as did many other standard North American homebuilding wood materials. Last Friday’s price in Madison’s Lumber Reporter was US$354/mfb for WSPF 2x4s.

Recent Softwood Lumber Price Volatility Settles

Demand for 2x6 sizes in all species and regions has been hot, even as prices have remained flat. A big run on 2x6 at the end of the year is unusual, as this is usually a slower time for lumber manufacturing and for US home building. Such a jump in 2x6 sales is notable because that size is used more often for 2-to-4 structure building (condominiums) as opposed to single-family home building, which uses predominantly 2x4 sizes.

Last week also marked the surprising cancellation of the British Columbia (BC) forestry trade mission to China. Regular trade missions have always been extremely successful in the past; within a couple of years following each one, numerous Canadian companies have signed supply agreements for their lumber with companies in China. This year’s trade mission—led by BC Forests Minister Doug Donaldson—includes approximately 40 company executives, civil servants and indigenous leaders on a 10-day sales trip to Korea, Japan and China.

A BC government press release explained that the Province has suspended the China leg of its Asian forestry trade mission due to the international judicial process underway (in Vancouver, BC) relating to a senior official at Huawei Technologies. Government officials returned home after the Japan leg of the trip, but industry and company representatives continued to China and held their scheduled meetings as originally intended. The trade mission for BC government officials is expected to be rescheduled.

Below is a graph of the North American benchmark lumber products and prices from January 2017 to December 2018.

As the year winds down, it is normal for producers and resellers to deplete their existing inventories in an effort to wrap up the year with empty supply yards. However, customers also don’t want to be caught at year-end with large inventories of wood on hand, so they typically order only for immediate needs of existing building projects. The usual seasonal curtailment and closures during the holiday season allow manufacturers and end-users each to examine their inventories against their near-term (spring) plans. Once January arrives, it becomes obvious if US builders will need large supplies for the coming building season. Sawmills adjust their production plans accordingly in an effort to keep supply in line with demand.

This means there is little likelihood of prices dropping further before the end of 2018. Sawmill order files are already to mid-December or the beginning of January, so producers will likely not book any more wood orders for future delivery. They would rather wait until after the New Year, at which time manufacturers will be better able to see where price levels are headed.

The below table is a comparison of June 2018 and December 2018 prices for benchmark dimension softwood lumber 2x4 prices compared to historical highs of 2004/05: